Presentation on Depreciating Indian Rupee :Major Problem in Indian Economy

7/27/2019 Presentation on Depreciating Indian Rupee : Major Problem in Indian Economy

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Depreciating Indian Rupee :Major Problem in Indian Economy
http://blog.oureducation.in/wp-content/uploads/2013/01/INR.jpg?4dd627


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Evolution ofthe Rupee


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How it all began

Early Uses

Coinage Since the British Period

Since 1947

Decimalisation

1966 Economic Crisis

1991 Economic Crisis

Revaluation

Depreciation

Dates Currency S

From 1835 1 rupee = 16 anna

From 1 april 1957 1 rupee = 100 n

From 1 june 1964 1 rupee = 10


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Post Independence, the economic crisis of 1966 and 1991 col

attributed to the weakening of the rupee further in global mar

The trade deficits of 1950, resultant inflation and the stopforeign aid, the war of 1965 and drought devalued the rupee f

Subsequent liberalization helped stem the flow till 1991, whstarted facing its next wave of Balance of Payment Issues fr

1990.

With imports restricted and high deficit, the rupee was devaagain especially by 1999.

Rupee after independence


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Between 2000 2007, the rupee stabilized quite a bit and reached levels of 39 (in 200USD.

With high remittances, sustained foreign investment inflows and the development of

sectors of outsourcing and technology, the rupee led a strong battle against the USD

However, the subsequent global economic recession since 2008 has led to it steadily since.


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Lets take asome of crisis in

last five y


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A snapshot of theWorld Economy

The United States of America experienced a major technically known as recession in the year 2008.

The financial crisis was linked to reckless and unslending practices resulting from the deregulasecuritization of real estate mortgages in the United St

The rise in the quantity of bad debt lead to a liquidity

Significant decline in economic activity, 81 public cofile for bankruptcy in the United States


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Survival of the fittest: Ind

It was indeed the survival of the fittest, the Indian econemerged out as a real hero with only minor bruises.

Despite an unprecedented global recession, India remathe second fastest growing economy in the world.

No recession for India

Indias GDP grew by more than 6% throughout this pe

Further, India also made a successful recovery from 20


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The Plight of Indian Econom2011-12


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Phase: SlowdownIndicators: GDP-6.5% as against predicted 7.6

0

1

2

3

4

5

6

7

8

9

10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32009-2010 2010-2011 2011-2012

7.9 8.4 6.5

6.3

8.67.3

9.48.5

7.68.2

9.28

6.7 6.1


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Issue of majorconcern:

Depreciating Rupee


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Depreciation or Devaluation?

Method of Exchange Rate Fixation

Fixed Exchange Rate Floating Exchange

Revaluation of

CurrencyCurrency

Appreciation

Currency

Depreciation

Devaluation of

Currency


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What is Depreciation? Currency depreciation refers to a fall in value of one c

with respect to another.

More and more rupees are sold and dollars are brough

Rupee Depreciation

So, if 1-1-2012---1 Re. = 2 Sri Lankan rupees

1-6-2012---1 Re = 1.5 Sri Lankan rupees

INR would have depreciated by 25 per cent.Again if, today 1$ = 45 Rs.

tomorrow 1$ = 60 Rs.

INR would have depreciated by 33 per cent.


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The Weakening Rupee 2nd worst performer in currency market among developing countries.

Lost 15% since May 2013

Indonesia(RUPAIYA)and South Africa(RAND) depreciated by 7% and

10 % resp. They compete with India in Agri-products, Engg. goods,

electronics and chemicals.

Similarly Bangladesh(TACCA) depreciated by 5%, which competes in

garment industry.

Thailand(BAHT) that competes in gems and jewellery, there currency

have depreciated by 7% .


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1

7.5

8.39

7.8612.38

17.01

32.427

43.5

43.47

45.19

39.42

48.88

46.37

46.21

44.17

48.2

53.395

1947 1966 1975 1980 1985 1990 1995 2000 2005

(jan)

2006

(jan)

2007

(jan)

2008

(oct)

2009

(oct)

2010

(22jan)

2011

(april)

2011

(sep21)

Exchange Rate (INR Per USD)


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Causes of Depreciation in Rupees (I


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ROLE OF RBI

Unchanged Interest Rates:

RBI kept its interest rates unchanged in its MonetaryReview on June 17 and July 30.

Keeps repo rate unchanged at 7.25 percent.

Reverse repo rate stays at 6.25 percent.

Cash reserve ratio unchanged at 4.00 percent.


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Effect of Unchanged Rates


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Before we continue

Repo Rate : The rate at which the RBI lends money to commebanks is called repo rate.

Reverse Repo Rate : The rate at which the RBI borrows monfrom commercial banks.

Cash Reserve Ratio (CRR) : The amount of funds that the ba

have to keep with the RBI.

FII : Foreign Institutional Investor, An investor or investment fthat is from or registered in a country outside of India.


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Role of RBI

Authorized Body, Forex Licenses

Investments by Foreigners & ForeignTravel

EXIM Trade

RBI is the apex bank that intervenes, supervises, controls t

exchange markets in order to create an stable and active exch


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High Current Account Deficit Gold Imports, hefty oils bills and decreasing exports due to global sl

higher current account deficit. Our imports are higher than exportsworsening CAD.

The fall of the oil price to US$90/barrel has helped India to fight the dup to some extent but at the same time the Euro zone, one of Indi

partners is under a severe economic crisis leads to reduced exports. ThCAD of around 4.9%, depleting its Forex reserves and depreciating the

B l f T d I E


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Balance of Trade Imports vs Exp


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Oil Imports Issue

ld


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Gold Imports Iss

950 Tons of estimated imports t

10% of import bill, 75% of impojewellary.

33% of worlds Demand Villainous figure in CAB

Need for innovative financial inthat can provide real returns


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Key policy reforms like Direct Tax Code (DTC)

Goods and Service Tax (GST) have been in the pipe line for years.

A retrospective tax law (GAAR) has already earned a lot of flak fross community.

The government announced FDI in retail but had to hold back amore from both opposition and allies.

This has further made investors sentiment negative over the Indi

Policy paralysis


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Role of Government of India

Control measures for Currency

Fiscal

Monetary

Exim

Policy


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Low Growth and High Inflation


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Foreign CapitalInflows.


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Lower Capital Inflows

Although India has emerged as an attractive investment descan woo foreign capital from FII and deposit from Non reside

term, but it is still not enough to make up for deficit.

Further the uncertainty and delay in our commitment to econretrospective taxes, and policy paralysis within the govcreated a fear in mind set of global investor resulting into dec

Investment.

In 2012-13, India received FDI of $22.4bn against $ 35.1 (38%less).


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Recession in developed economies like US made big institutions tomoney from India

L k f C i l I fl


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Lack of Capital Inflows

$3.3 billion of Government & Corporate Bonds Bought vs$6


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Quantitative Easing

Quantitative easing (QE) is an unconventional monetary policyby central banks to stimulate the national economy when standarmonetary policy has become ineffective.

US Federal Reserve announced Tapering QE on June 19,which sta Fire sale in the world currency market, currencies of majorcountries started depreciating including Indias Rupee.

With the news of QE tapering Fiis started offfloading theirinvestments across Asian markets.


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Other Reasons

Increase in Crude prices. Increase in Fiscal Deficit of India.

Rupee Speculation

Devaluation Pressure


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Impact of depreciation of Rupee on

Exporters are the biggest beneficiaries

NRIs become richer

Tourism industry will flourish as the holidays in

India will get cheaper.

Imports will become expensive

Oil prices will increase

Rise in inflation Poor returns on FIIs

Difficulty in repayment of loans

Foreign education will get expensive

Foreign holidays will get expensive


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Impact on Economy

Imports

Inflation

Interest Rates

Fixed Income

Growth

Jobs

Affects of Weakening Rupee on Bus


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Affects of Weakening Rupee on Bus

Positives

Mixed

Negative

Companies having foreign debt will be impacted severely as compared to export or


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Advantages of Rupee depreciation to

I ndian Economy

Beneficial to the Exporters

Good News for NRIs

Benefits to the IT sector

Benefits to Investors invested in International Funds

Benefits to the Hotel Industry


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Disadvantages of Rupee depreciati on to

I ndian Economy

Impact on inflation & fiscal deficit.

A blow to Indian importers.

Exporters face difficulty in securing new orders.

Negative impact on FII flows to Indian market.

Negative impact on Indian students and travellers abroad


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Steps taken by RBI to curb

Rupee Volati l i ty

RBI increases restrictions on gold import by Canceling Margin Fundi

gold. The Govt. increased import duty on gold import to 8 % from 6 %.

RBI creates Demand for rupee by sucking excess rupee liquidity.

The apex bank restricted the limit of individual bank borrowing to 0.5its total deposits (or net demand and time liability).

RBI increased the daily average requirement ofCRRfrom 70 percenpercent.

The RBI will conduct sale of Government of India Securities to suck 12,000 crore.


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Measures to be adopted to curb the conti nuin

of I ndian Cur rency

Measures to Control Current Account Deficit

Measures to Increase Foreign Capital Inflows

Measures to Revive Economic Growth


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Measur es to Contr ol C

To reduce import we should bring in impo

supporting the domestic organizations by provbenefits, grants and proper Infrastructure.

To contain the current account deficit we shoboosting exports by export promotion policiemore stable longer term foreign inflows have ways to alleviate concerns on current account de

Subsidy on import products such as oil should b


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Measures to I ncrease foreign Capi tal F Recession in developed economies and uncertain political Environment made

to pull out their money from India.


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Measures to I ncrease foreign Capi tal F l

Government can create a stable political and economic environme

infrastructure and local support to the investors is another, admdifficult avenue that can be explored in this regard.

Making government bonds available to non-resident investoincrease the inflow of dollars in to the country.

RBI can ease capital controls by increasing the FII limit on i

government and corporate debt instruments and introduce highECBs.


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Measures to Revive Economic Gro

Apart from above measures to Control Current Account defforeign Capital flows, on time policy executions and str

corruption will also help us to revive the economic growth at

Conclusion

Companies should be encouraged to raise fund overseas, fore

will be liberalized further, and there should be curb on importproducts.


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Team Members

Yogesh Batra Anjali Raghav

Rahul Kuchhal

Preety Sharma

Vinnet Goel

Akanshi jain

Nikhil

Bhupesh

Documents

Presentation on Depreciating Indian Rupee :Major Problem in Indian Economy